COP26 and the European Energy Crisis: Lessons and Implications for the Australian Energy Transition
Good morning, everybody.
Just before the clock clicks over to 11 AM Just like to welcome you and start by advising that we will observe a minute of silence for Remembrance Day.
Well, good morning, everybody.
And good morning to my guest, Jeremy Nicholson, head of corporate affairs at Alfa Energy in the UK Hello to you, Jeremy.
It's particularly poignant, I suppose, today, given that it is Remembrance State here in Australia, you haven't quite got there in in London just yet to take a bit of time out from our busy days down on this side of the world to have a bit of a look at what's been going on in Europe over the last few months in respect of energy prices and also to have a bit of a pause.
And consider what's going on at cop 26 up in Glasgow and what that might mean for Australian businesses over the next few years.
Thank you so much for joining us.
I'm looking forward to talking about it.
Uh, for everybody listening and on screens with us today.
Thank you so much for joining us where it's 11:02.
So I think we can probably start moving into the pressure.
I'll take a moment, Jeremy, just to introduce our for energy as our as members of the energy experts alliance that energy action is also a member of and the energy experts alliance helps us reach beyond the Australian energy market, where we have deep expertise to support our clients and certainly to support Alfa energy clients and other clients around the world with their energy management and emissions management around the globe and Jeremy prior to your current role.
Jeremy was director of the Energy Intensive Users Group, which campaigns for secure competitive energy supplies for UK industry.
Backgrounding As a civil engineer, Jeremy has certainly seen a lot of change to the UK energy markets and European energy markets over the course of his career and has specialisation in infrastructure and regulatory projects for utilities and their regulators.
Jeremy is a board member of the Independent Federation of Industrial Energy Consumers and was a member of Ofgem's Sustainable Development Advisory Group and is a fellow of the Energy Industry Institute.
Thank you very much for joining us.
And, uh, it's, um I have to say It's a great pleasure to be presenting this from London for the first time in 19 months.
I was able to visit Brussels and talk with my European colleagues earlier on today, which is a great treat after all the lockdowns and difficulties we've had here in Europe, as I know you have in Australia and elsewhere.
Look, I'm very pleased, Jeremy, that you had an uneventful trip and you're back home and safe today, so welcome back.
Okay? Look, just before we we jump into the topics the topic today, I thought I'd just for the benefit of our audience just, um bring everyone up to speed with energy action, who we are and where we're going, you may not have been able to To join us in the past Energy actions mission is to make energy easier, cleaner and cost less.
This is really important to us.
Be frankly, because the status quo is no longer acceptable.
And it's great to have cop 26 as a background to explore some of the themes today around that here in Australia.
Our goal is really to help Australian businesses manage their energy spent and provide them with a clear pathway to net zero.
We are financial services licence to provide advice in relation to energy and energy derivatives, where an ASX listed business with more than 20 years experience here in Australia, supporting more than 7000 clients at the moment, with more than 20,000 large, smaller sites on our books, we are supporting about 1000 energy buying events each year here in the Australian market and and for the rest of my day after this, I will be working on our certification that we're in pursuit of, with climate active to be able to announced to the market and everybody that we are a net zero business.
Jeremy, may I take a moment to ask you to share with us a little bit about the Alfa Energy group? I'll be pleased to.
I mean, we're an international consultant and service provider.
We've got local and international reach major hubs of operations in London and in Sarajevo and, uh, Frankfurt and elsewhere increasingly focused on sustainability.
So it's not just about energy procurement.
Important, though that is, it's about energy management, carbon management, energy efficiency and reporting and so on, which is increasingly important to all business consumers, and I'm sure we'll see that developers We go through the slides for the presentation later on.
We're agnostic about suppliers.
We want the best value for our clients, as I know you do and all all clients want.
And we're crucially were independent specialists in energy and sustainability services that were not beholden to any any particular supplier or vested interest, or, indeed, technology that have been privately owned for 25 years and therefore with a proven track record.
And interestingly, we also have a part of the business code line Solutions, which provides a our own IT services, which is of crucial importance in terms of, uh, servicing clients with multiple sites, any number of metre readings and environmental water, as well as energy reporting and data to manage.
And we also have this other offshoot net zero carbon, specifically focused on the low carbon journey, which we are now all on whether we want to or not.
And hopefully some of us are more enthusiastic about it.
Um, this is the journey we are all on now, and helping businesses to manage that as effectively and cost cost efficiently as possible, I think, is a crucially important thing indeed, indeed.
Look, it's a great match and always a pleasure to be working with the Alfa energy team on our joint clients.
Okay, look, I thought I'd just take a moment, Jeremy, just to draw out some of the similarities and differences that exist between the energy markets in Europe and Australia just to give everybody a bit of context there before we get into some of the price movements that we've seen in Europe that have impacted the UK markets in recent times.
So look very quickly for everybody's benefit.
I'll just make the observation that the UK energy market structure implemented in the early 19 nineties was the template, I suppose, for the Australian energy market structure.
We both have deregulated markets for generation energy retailing, metering and some of the market services, um, but retain regulated monopolies in place for transmission and distribution businesses to carry the electrons around the country.
Um, regulators, I think as well, Jeremy, you're probably closer to the regulator in the UK than that I am here in Australia, and the relevant regulator here is the Australian energy regulator, the E.R
It's a subsidiary of the sea, which is our competition watchdog here in Australia.
Um, the E.R. is fundamentally responsible for licencing energy retailers, as I believe often is, and both of the regulators and merited measure themselves on competition, affordability and security of supply we share to a central market operator.
I am a is the operator here in Australia.
The national grid responses.
The cricket umpire sometimes is the operator in the UK Um, an important difference.
Perhaps Australia, as an island continent, has energy independence.
At the federal level, we have probably, I think there's probably four regional markets across the country.
Sorry, four regional grids, three regional markets on the East Coast and two on the West Coast.
So we have energy independence, the federal level.
The UK obviously a smaller landmass and much closer to the bigger landmass.
The continent of Europe does not have energy independence, and we'll explore today the importance of the global integration and the integration of the UK markets into the Europe market in particular.
Um, I'll make the point to that the UK obviously very highly integrated into the European and global markets.
But so too is Australia.
Even as an island continent by virtue of our participation in the LNG export markets.
We are very gas which is a price setter in the electricity markets and and in very important fuel across industry here in Australia is increasingly exposed to international gas prices.
Okay, look, just the other thing that that's quite interesting as we move into our topic today is just drawing out some of the the similarities and differences on our trajectories towards net zero and energy On the right side of the page, I've just presented very quickly the Australian energy generation output mix.
As for FY 21 for last year, you can see the significant impact, the significant reliance we have in Australia on coal for producing energy verse.
But you can also see the importance of renewable sources solar, wind and water collectively about 27% of the Australian energy mix last year.
And when you look through the market planning documents, you can see how much solar and wind potential and how much investment is coming into those sectors here in Australia, with about another 10% of total capacity to be added or committed to be added in the next two years, of renewable generation and at the planning and the planning stage.
I believe there's a 200% of current capacity coming from solar, wind and storage resources into the Australian mix.
So there's plenty of opportunity for Australia to move to a low carbon energy economy, but also plenty of plenty of road to go yet before we get there.
Um, the UK energy mix.
Can you give us some commentary on that? Jeremy quickly? Yes, a very brief history, because if we looked at this chart 30 years ago, it would have been relatively similar to Australia in certain respects that the numbers would have been different.
But it was very much a cold dominated system in the 1990s was a dash for gas, with a lot of what was then cheap natural gas in the U.
K Continental shelf displacing coal, we managed to reduce price and coincidently reduce carbon emissions.
Although that wasn't the priority at the time, it was fortunate that it had that effect.
The UK is different, of course, in having nuclear as part of its, uh, low carbon baseload, which is advantageous as far as climate targets are concerned.
But historically the UK had relatively little renewable production, and that's changed massively in the last 10 or 15 years, and you can see there wind making up over a quarter of our energy production on certain days of the week.
For days in the year, it can be almost half and sometimes slightly more than half of our production coming from wind, including the world's largest offshore wind fleet.
So that's been a real transformation, getting rid of coal, replacing it with gas, maintaining some nuclear and massively expanding renewables.
There are some issues associated with that which will touch on as well.
It hasn't been a cheap transition, but it's been one of the more successful in Europe in reducing emissions quite drastically, in fact, over the last 10 or 15 years.
Look, the other significant differences from certainly hear from Sydney imports of 9% and I understand to a fair portion of that gas is coming into the UK system from Europe.
Yes, that's right.
Um, the UK is unusual in Europe in about half the gas we consume is produced within UK waters or or unsure.
Um, Norway is another big producer in in in Europe, which which supplies a lot of its neighbours.
But Europe as a whole is relatively import dependent on gas, Russian gas through pipelines, especially the new Nord Stream two pipeline, which has been in the news recently.
There's always a political dimension to this, but increasingly dependent on LNG, which is otherwise going to the Asian markets.
And therefore you know it's price often reflects what, what what is being traded for in other parts of the world.
So Europe as a whole, relatively import, dependent on gas, the UK less so but physically connected, just as it is on power.
And of course, you know, the markets therefore tend to move in tandem with one another.
Now, interesting look.
Certainly you can draw a contrast there with gas.
As a contributor to the Australian energy supply system, it's only a small contributor, but it's a very important price setter, particularly as for peaks, as we get more and more solar into the system, more and more intermittent, renewable sorry into the system, Um, look, the other two will be really important benchmark.
Just as we move into looking at prices in energy in Europe and also in a discussion on Cop 26 is down here at the bottom of the screen here was impressed to observe that UK emissions intensity is, um, 200 kg per megawatt hour, um, and European emissions intensity slightly higher.
But just over a quarter of a tonne per megawatt hour, completely dwarfed by the Australian emission intensity at the moment for electricity, with Australia running at almost three quarters of a tonne of carbon per megawatt hour produced at the moment.
And that's very much reflected in that mix there, isn't it? Yes, and I would just say one last comment on that.
K's performance on reducing power emissions from generation has been very good, that the history sport has gone a little bit of a longer way to go to catch up with that, right, Right, Right.
Um, look at another point of comparison.
The energy trill, trill, Emma, I guess a paradigm or a framework developed by the World Energy Council about a decade ago and two, I guess, express the difficulty faced globally by energy systems and energy regulators to balance the the competing priorities sometimes of environmental sustainability, energy security and energy equity or affordability.
the UK ranks equal fourth with Finland.
It's very impressive, Um, and whereas Australia ranks a middle of the pack 18th, just behind Slovenia but ahead of the Czech Republic, reflecting perhaps some of the volatile energy prices and we've experienced here in Australia over the last couple of years and certainly some of the issues we've been wrestling with as a nation around sustainability and our reliance on coal, how do you see the stresses of this trial Emma manifesting in current energy pricing across Europe? Well, unfortunately, there is a trill Emma, and occasionally you'll meet enthusiast for one or other poll of this three sided diagram claiming there's not really a dilemma or a trill Emma there, and people are making too much fuss about all this.
If only that was so.
If there were no tradeoffs between security, supply, sustainability and price and affordability, then we wouldn't have this difficulty to deal with internationally.
If if it was true that as we would all like it to be, that the lowest carbon sources of energy were also the cheapest and most secure, then this problem would tend to solve itself without any any intervention.
And it's part of the mission of engineers such as I used to be and policymakers to help, uh, make that change happen as fast as we can, because, in fact, it's by making low carbon energy more affordable.
Um, that were encourage its deployment globally, so it's not just dependent on policy interventions.
The security of supply angle is always important.
Um, and you know, for electricity it's vital.
You know, you have to have a system that balances second by second, and wind and solar are fantastic when the winds blowing and the sun shining.
But you need a means of storing that energy.
Sometimes seasonally in the UK market may be rather different in Australia, of course, for solar, um, and that needs to be managed.
So you know there are solutions to these things, but we have to be grown up about it.
There are always trade offs to be managed when it comes to policies, I'm afraid, always, always, and certainly as we step into a couple of charts here that described what's been happening in certainly European energy pricing over the last few months as Europe is braced for colder weather and also, I think, perhaps felt the the pressure of some of the geopolitical forces across Europe between Russia is a significant gas supplier to Europe and and gas also coming in from North Africa.
Um, I guess, Jeremy, look, we we we can track.
And there's lots of people tracking the fact that fossil fuel reserves and investment in new infrastructure, investment in fossil fuel reserves and new infrastructure is slowing significantly around the world and slowing with, uh, I guess a focus on the climate impact of a burning fossil fuels for energy.
It's also slowed as a result of covid over the last couple of years.
Um and of course, you know, as both North Asia and Europe head into winter and perhaps more unpredictable, if not extreme weather patterns.
And Jeremy, can you give us an idea as to what we're looking at here on these charts and whether these radical price moves do represent a foretaste of what a carbon constrained energy economy does look like up to a point? Yes, If we start off with gas, there are some specific things are affecting the gas market at the moment, commentators are fond of using the slightly cliche term a perfect storm, which I try to avoid using normally.
But in this case, it seems to be appropriate.
We've had this sort of, uh, you know, artificially low prices, if you like, because of the covid induced recession.
And then the recovery from that which I'm glad to say, has been faster than many expected or feared in the UK and elsewhere in Europe and indeed in other parts of the world, which has driven that demand back up again very, very swiftly.
We've had some European specific issues, such as the availability of Russian gas related to this new North Stream pipeline, which has a political dimension to it, Um, and, of course, the very high demand for gas in the Asian market in from China and so on when instructions went out to to purchase gas, whatever was available at, uh, whatever price for a period of time, and that naturally, Drew drove the markets up into a frenzy and for the European markets, dependent as they are on securing LNG cargoes, many of which are not secured under long term contracts, and they have to pay whatever the short term rate is in the market when you've got a scramble for scarce resources.
You see the prices spike.
So I think what this tells us is that you know something we know anyway, that gas can be a very volatile commodity.
And if you want to get rid of that volatility, you have to transition onto something else or manage it through longer term contracts.
Probably a mixture of the two, because gas is a vital transition fuel for accommodating variable renewables, and there's a heating source in its own right, and it's going to take a while to move away from that.
So I think that the gas price chart tells you more about fossil fuel pricing than it does about the transition.
But it's interesting.
We can't necessarily assume that those prices are going to remain low if investment dries up, because the long term future for its production is not looking as rosy as it might have done in the past.
Moving on to carbon this has been something of a surprise or delight, perhaps environmental.
Sorry, General, I just might.
Just just to give our audience some relativity is I might just just unpack this this graph a little bit the what We're looking at here, guys, is the price is in euros per megawatt hour at the Dutch hub.
Pretty much as I understand, Jeremy an equivalent for the entry point into the, um the UK market as well.
Um, to translate that into some Australia speak it represents about $40 or €90.
Represents about $40 Australian for a gigajoule of gas.
Our market, I guess over the last couple of years, we've had a bumpy ride transitioning to a price for gas natural gas of about 10 to 12 bucks per gigajoule, which tends to be which is where the Asian market sat for a long time before it the Asian market is looking at about is it about $40 a gigajoule as well off Japan.
So I think we can appreciate it a 400% increase on what we're used to seeing as a price for gas.
I'm sure that hurts and but allow me to move you on to carbon as well.
Well, I do and thank you for that because we're all used to explaining things in our own units.
And although the shape of the graph may be similar in different markets that that the numbers don't always mean the same thing.
So that's really useful.
Clarification on carbon.
Um, we have two markets here.
There's there's the EU emissions trading scheme, which is the main one of which the UK used to be part.
Um and the UK has recently launched its own UK emissions trading scheme, which is fundamentally similar, and the prices tend to track one of those you might expect.
The long term expectation is the two markets will be linked, hopefully with some other global markets in due course and what's been driving the rise in carbon? Well, as as we've explained so far, obviously there's been the economic recovery.
Uh, the issue about the availability and price of gas has made that perhaps more coal has been burnt in power generation, and that's that's helped to create scarcity in the market for for allowances and have been a number of policy measures taken in recent years by the European Commission to make sure that there isn't a surplus of allowances and that's allowed the price to rise.
Plus, of course, the European Commission has announced this fit for 55 package there.
The reduction in emissions by 2030 or 55% from the baseline, which is going to require a tight carbon market and therefore potentially quite high carbon prices in order to deliver its objectives.
So the market has responded, it's anticipated and that's part of the reason why the European carbon price is so high.
And look just to draw out the what we can see here.
We've got the European carbon price settling at close to $100 Australia, which is a significant number because that's that's where a lot of the background discussions around Cop 26 suggesting that a carbon price needs to be long term and we can see the impact that that rise is having on the accuse.
This blue chart blue line down here, the New Zealand price.
But the blue line down here is the accuse.
So the Australian Carbon unit certainly starting to move up towards $40 as buyers are observing what's happening in Europe.
Just as this gas price is having an impact on Australian electricity prices as gas is being diverted from the Australian market to take advantage of those high prices in Asia and across in Europe and Jeremy with.
It's a bit of a privilege to have you join us from London, and I guess the the energy transition in Australia if we just diverted here for a moment before we move into Cop 26.
Um, it's obviously been a bumpy ride for Australia over the last couple of decades.
It's been a very polarising issue across our political spectrum, Um, and and things have been happening at different speeds.
Uh, and that's had an impact on energy pricing.
Um, it's also one of the key dynamics we've seen emerge really strongly, certainly since the bushfires in 2019 is businesses and individuals.
Consumers and employees, um, look like they're moving far ahead much further faster than our government in defining and participating in actions which will reduce carbon across the economy over the next few years.
But I'll be just interested in your reflections.
You're not inside the bottle like we are here.
Um, what do you see when you look at Australia's journey towards net zero from your side of the world? Well, clearly it partly reflects where you're starting from, and if you have a very heavily coal dependent power generation system.
It's necessarily going to be rather more problematic, making a transition than it might be if you were starting from from a different place.
And also the politics is so different.
You know, they say politics is always local.
In fact, it's local, within countries, even within the United States.
You can see the difference between a attitudes to environmental policies in California, say, compared with oil producing states like Texas and Oklahoma and what needs to recognise that you need to bring people with you in a democratic system? And you know, even though some of us think, well, why can't they get on with it? Why can't they impose these policies and drive us forward? Life isn't always that simple.
Politicians have to get elected, and we've all seen the news about the, you know, some sometimes toxic debates about carbon pricing in Australia and elsewhere, which is a shame from an economic point of view, because it should be one of the least cost tools for helping us decarbonization the most carbon effect, most cost effective way.
That has not been too much for a problem in the UK or in most of Europe, although one or two countries like Poland, which are heavily coal dependent, are more sceptical.
That said, you could say there's a little bit more honesty in the Australian debate in that there's been an attempt to confront the question of cost.
Sometimes it's been a bit brushed under the carpet in Europe, and there's been a pretence from politicians that this agenda will somehow pay for itself or won't tend to be expensive.
And I think as carbon prices rise and new taxes come in and regulations to start changing the way businesses and others use their energy, I think that the public reaction isn't always as enthusiastic.
When the bills start to rise is when they are asked a question like, Do you want more clean energy? And who's going to say no to that? Uh huh.
Indeed, Yeah, you're absolutely right.
Yeah, it's a tough balance moving into that, your prime minister, Boris Johnson, greeted our our prime minister's commitment to net zero by 2050 as a as a heroic commitment, which is very flattering, and I think Australia still got a long way to go two to build some credibility around its statement there.
Yet Jeremy, can you quickly step us through the significance of cop 26 where we're going in relation to the cop 26 moving on from Paris? Indeed.
Well, the conferences, conferences of the parties are are normally annual.
We've had a bit of a hiatus because of the covid situations.
We've got two years wrapped up into one.
Um, the Paris agreement was particularly significant because for the first time, pretty much everyone signed up to keeping, uh, or attempting to keep warming below two degrees and as close as possible to 1.5.
And their to do this by these voluntary, nationally determined contributions.
The NDC s as they're called and countries were, you know, rather interestingly allowed to develop their own, uh, pathways and, uh, trajectories, indeed, endpoints for reducing their emissions in order.
That was something that process that everyone could contribute to and progressively improved these from from from from 11 year to the next or one session to the next.
And the expectation was that cop 26 should be, if not a breakthrough than a major step forward.
As far as revising these NDC s are concerned, it's I think the jury is out on that for this particular cop.
But there has been some progress which we shouldn't dismiss.
And they've been various initiatives which will mention later.
Um, but so it's all about bending the curve rather than a major step forward.
So, uh, you know those who are getting terribly excited about keeping 1.5 degrees alive as a trajectory? I mean, they have a point, but we've got an awful long way to get towards that.
But equally, we're a lot further away from the more damaging scenarios, which we thought we might have been in a few years ago.
So we should, you know, should take a balanced view of this, I think.
Well, let's move.
Let's move straight onto that, shall we? Jeremy, let's let's have a look at look, some some data or a compilation by the International Energy Agency trying to sort of pick through the pledges and commitments that have been made.
Can you describe to us how you interpret this this slide discharge, Jeremy Well, I think it summarises the situation very well.
You can see the trajectory of increasing emissions on the black line starting to level off a bit.
Um, there's the forecast rise in temperature rise by 2100, which was looking like it was going to be around 2.6 degrees higher than this optimal, probably from from a climate protection point of view with the stated policies of countries.
If you now look at the yellow line, that's what the pledges that have been announced so far in the run up to this carbon during it, which is a significant changing.
You know, it's not as far as the environmentalists would like, and they're probably right to press for further action.
But it's it's a lot more encouraging than I think many of us thought was actually going to be achieved a few years ago.
And if you look at the updated announcements, um, you know, we're possibly under two degrees, probably near about 1.8.
Um, is that good enough for some people will say no, but it's a lot more comfortable position.
Of course, this depends on whether countries deliver on those commitments, which is another matter.
But you're not going to deliver something if you don't announce it first.
And even an announcement by countries like Australia and indeed, uh, others, perhaps more surprisingly, like Saudi Arabia, that they are eventually going to trend towards net zero.
That's a huge change on where we were a few years ago.
You're absolutely right.
And look, I think it you mentioned earlier the process, the nature of the process.
There is no a single body that can mandate.
You will do this to every nation in the world.
By its nature, it's going to be a pluralistic process.
It's going to be a, I guess, a continual ratcheting process.
It's going to be a grind, right? And what cop 26 I guess really illustrated to me is the the importance of the moment of accountability that we're getting each year as the Counsellor Party's conference of parties, rather, as everybody comes together to and not only make their pledges and commitments but have it brought out into the daylight, what they've achieved and where they're at and what they haven't done? Yeah, indeed, on on transparency, I do have some concerns because, you know, major emitters like China and indeed Saudi Arabia have for various reasons reservations about greater transparency.
Some of those might be legitimate because they relate to GDP or other issues there a little bit more sensitive.
You know, you do wonder if, if you're trying to, there's an element of trying to conceal what's going on or at least allow for that possibility in future.
I hope my cynicism is wrong about that.
But, uh, it's normally a sign of good intention to be open about these things and when when, uh, when countries resist greater transparency? I think I think, you know, we're right to be a little bit wary.
Indeed, it's a good summary of the current politics here in Australia that issue of transparency.
Um, look, some of the we've got about 10 minutes left, I think, Jeremy.
So we just might run through some of the the achievements or stated achievements of the the Cop 26 the global methane pledge that was looked like a great piece of and US leadership and some pretty exciting stuff.
I know Australia has not joined on to that, but can you tell us how important that is? Well, as the chart shows, you know, methane emissions, which are an important source of carbon emissions, are reducing to it, so it's not all about CO.
Um, it's about all greenhouse gases, and the methane pledge is important, not because it covers everyone or that everyone is equally committed to the same thing.
But it's creating a sense of momentum that others are likely to join it in time.
So addressing that and perhaps slightly different ways from from from from the CEO to issue, I think the thing is equally important and, you know, methane.
We tend to think of this obviously in relationship to natural gas, and and, uh, you know, uh, fugitive emissions, as they are called from from gas wells and and and and other sources, um, that contribute to methane in the atmosphere.
But of course, an awful lot of methane comes from coal coal mines as well.
And I suspect that maybe the reason why, at least for the moment, it's perhaps a little bit more difficult for Australia to to follow the others on as faster trajectory to reduce them.
Although I rather suspect the momentum in this area is building and it will be interesting to see how that changes in the years ahead, it will.
It certainly will.
The the conservative coalition here is also concerned about land use and other and farming practises and so forth.
Yeah, it's, um, yeah, important.
A part of the contribution.
I understand, too, Just in respect to the science of global warming.
Methane is two things.
It's a very significant global warming has significant global warming potential, as a gas also breaks down very quickly, so arresting methane emissions has will have a significant impact in the near term as well.
So it's a big contribution, right? Indeed, yeah, and related again, we 23 countries committed to phasing out coal, including a couple of Australia's trading partners or recipients of Australian coal, Um, significantly, Vietnam and South Korea all committing to reducing their reliance on coal and do, in fact, stop financing coal or it's not abated.
It's a big step forward as well.
Indeed, I think this is one of the most important.
I mean, coal is clearly the most carbon intensive fuel of all.
It is mostly carbon, after all, and hugely significant in terms of its importance to to power generation and one or two industries such as, you know, in blast furnaces for steel production as well.
Uh, for known issues is there, but it's primary as a power generation fuel, which traditionally has been one of the cheapest.
Right now, of course, Coles expensive.
But as carbon pricing or equivalent measures come in, one can't guarantee that's going to be so in the longer run.
But I think you know countries will choose different means of moving away from coal.
Some will do it with market based measures emissions trading, cap and trade or carbon pricing through tax, and others will do it by regulation.
But the first thing for those that can do it is to stop building more of it, Um, and to have more firm capacity because we need firm and dispatch double capacity, as well as intermittent renewables on the system and as and as well as nuclear.
For those who want it, um, to build that firm capacity with something else other than coal or potentially, it could be coal with carbon capture and storage.
Although there are some cost and other controversies associated with that, I suppose it's worth noting that not all these countries have the same trajectory for phasing out coal, to put it mildly, but the fact that they're all on the same page and talking about the same thing is a huge advance on where we were.
And I don't think we should trivialise that, um, this this is the way the world is going.
The only difference now is at what speed.
And if we've been having this conversation five years ago, uh, we wouldn't have been anything like as an optimistic position is that I don't think, yeah, indeed, indeed, Look the another important game that was played out a cop 26 understand Jeremy was the the European Union's proposal to introduce a carbon border adjustment mechanism.
And I can see we've got a a question in from the audience about the likelihood that we might see tariffs from our trading partners on energy intensive products in the future.
Can you tell us a bit about that proposal from the EU and where that's got to? Yes, it's a proposal at this stage, although it's apparently a firm one, and it's one that's also being considered by the UK government, and the plan would be to effectively put a tariff, as you say, on imported goods from countries like China or elsewhere that don't currently apply uh, carbon controls on goods like steel or fertiliser and, um, and an alum in ium and so on that our energy or carbon intensive to create a level playing field.
And this can be done under WTO rules.
There are some problems with it.
It doesn't solve a level playing field for exporters.
So if you're an exporter, that's in in Europe, uh, subject to carbon taxation on your energy supplies and an emissions trading for your direct emissions.
Um, there's still no means of levelling the playing field when competing with with other parts of the world.
So that's that's a big emission.
So you'll find that the countries that are worried about imports are quite enthusiastic about this, and those who want to export think hang on.
It's not going to solve our problems, Um, and the other.
The other issue, of course, is that, uh, you know, when you try to go down this route, there's always the risk of trade retaliation measures from from those who are imposing carbon taxes on uh, so you know, it's it's a difficult game, but I see this as part of diplomatic positioning.
It will be good in a way if we don't need it, because the mere possibility of it coming in may encourage others to start applying carbon controls, perhaps in a slightly lesser level initially of their own.
And that is, after all, the objective of the exercises not to put tariffs on, but to get other countries involved in carbon reduction.
Well, I guess, Yeah.
Let's acknowledge, though, that there appears to be some momentum behind this.
S and European Union have signed a side agreement to allow for carbon adjustments on steel and aluminium.
I believe aimed principally, perhaps at putting some some barriers up for higher mission still coming out of China, which again will impact Australia's coal exports eventually.
I think the other thing that we can see here is there will be fundamentally.
What this is about is reducing the carbon leakage right from one economy to another, where all states are ahead of other states, and I think we will see progression towards a global carbon price in some form or other over time.
That's exactly right.
The objective of the exercises reducing global emissions, not simply moving them from one place to another, lowering your own balance sheet, putting it on someone else's.
Yeah, that's right.
Look, we're running short of time, so I might just come down to summarise some of the the key cop 26 impacts that we think we'll see on Australian businesses and thanks Jeremy for stopping to explain them to us.
And firstly, to your point there, it does feel like there's a cause for optimism.
There is a pathway.
We're not there yet.
We can't be apathetic.
But there is a pathway to limiting global warming to within 1.5 degrees.
As that craft demonstrated.
If you look at everything from the right angle, 1.8 degrees is within reach, and we've got some time left to push further on that, I think to, from an Australian perspective, a lot of the messages coming back from people in Glasgow at the moment to Australia is the significant opportunity that that does exist for Australia as a you know, well governed, uh, quality that that could be.
And with abundant natural resources, it could become an important exporter of carbon credits.
In the future, we might have to sign on to some of those other pledges and come up to speed on a few things.
But the other key point is, and we are a potential exporter of sunshine.
Be that as electrons up to Singapore as green hydrogen.
Um, as per Twiggy.
Forrest has big plans, Um, and and green steel as well.
So there's there's momentum there.
We are also expecting across we can see it across businesses.
But across the world, an increased commitment to carbon reduction, not less, will come out of cop 26 eventually uniform rules for carbon offsets, which will set, I think, a global carbon price in some form or other, Um, and certainly, uh, a lot of the discussion we haven't had time to touch on it.
Here is about the different experience of developed and developing nature's developing nations and even between different countries that have different attitudes and, uh, cost and risk pressures.
That change creates volatility across the world and creates change.
It creates volatility within an economy like Australia, and that, in turn, will create opportunities and costs and just to wrap it up.
The other thing that's clear is something has happened to our prime minister since coming back from Glasgow.
He's made a number of announcements.
This is the guy that carried a lump of coal into Parliament a few years ago and told us not to be afraid.
He's made announcements in support of electric vehicles there, apparently not going to ruin Australian holidays anymore.
And he's pitching half a billion dollars at the Clean Energy Finance Corporation here in Australia.
If we can change the mandate for them to look at carbon capture and storage is for that funding.
Um, Jeremy, though, while we focused very much on government role in government action and so forth, and certainly we can see some of the risks if we don't get the policy settings right, it's clear.
And I think you'd agree with me here that that there is responsibility on consumers and there's responsibility on the businesses that are supporting that consumption to take ownership of their emissions and respond to the agenda towards Net zero.
And as you mentioned, you know, while our collective governments might be struggling with ideas and a comprehensive strategy to reach net zero, you know we're not as a business.
We're working with clients right now on everything from establishing comprehensive science based targets, which are becoming increasingly important.
Net zero strategies beginning the implementation of road maps.
Sustainability data systems Looking at scope 123.
Sometimes that's required for regulatory reasons.
Sometimes it's independent renewable energy journeys as part of a wider strategy.
Implementing power purchase agreements, carbon certificates, trading on site renewables and a plan for offsetting what remains so.
There's an awful lot going on, and our message will be.
Take control of this where you can, of course, governments have to do certain things themselves.
But this agenda is going to affect every business.
It's better to be ahead of the game, and there's no shame in talking to experts and consultants in areas where you might not have that expertise in managing things in house.
I couldn't agree with you more Jeremy and look, really that what the agenda now is all about is reducing the steepness of the curve right? It's about flattening that curve.
It's something we can all talk about globally in the wake of covid flattening the curve which will fundamentally flatten the cost of of not net zero.
For us all, Jeremy Alfa offers a range of services to help global clients and certainly European and UK based businesses to achieve net zero.
Can you Can you elaborate on some of these artefacts here on screen? Yes.
I mean, just just to reiterate what I said a moment ago, Uh, there's action on all fronts.
So whether it's it's data management, whether it's procurement, whether it's reporting and some of this might be statutory reporting, legal reporting something that might be for your own internal government's governance uh, perspective, Um, and indeed for for attractive, attracting finance these days, demonstrating you have the right control procedures in place and you have a net zero plan is increasingly important, and you need the right systems in the right expertise to implement it.
Uh, and you may or may not have that in house.
If you haven't doesn't matter.
There are other people that can help you with it.
So, you know, talk to us, talk to talk to others we're working with on.
This will be absolutely glad to help, because this transition is complicated and not everyone can do everything on their own.
Yeah, that's right.
And look for our audience.
If you'd love to make contact with our energy in Europe.
Please reach out to US energy action.
Work very closely with Alfa on a number of clients.
And certainly we are helping all of our clients here in Australia map their path towards net zero with local partners and so forth and actually in some very important tools of our own.
Please look out and check out our website both for our energy market wrap, which is providing visibility on forward prices of energy and our our energy price index as well, which is tracking current markets.
We'd love to talk to you too, about our green auction process renewable energy supply agreement, which we back as a simple, very cost effective and very clean way of reducing your scope, two emissions and getting on our path towards Net zero for your business.
Jeremy, we're a little over time, but thank you very much for joining us and just we've had a couple of questions in from the market in from the audience, I should say I think we've addressed the question about the likelihood of seeing tariffs on energy intensive products and out of Australia.
I think the answer is yes.
We will see that although the actual format.
We're not quite sure, um, and look, we had a couple of questions about the Australian energy mix as well.
One about nuclear, which is still not only is not on the political agenda is yet and one about the solar mix making the point that the UK solar mix is much higher than solar contribution is much higher than Australia's.
You respond to that by saying it will change significantly over the next few years if you look at what's committed in respect of renewable wind and solar development, but also what's planned in respective of solar development.
There's phenomenal volumes of solar generation coming the system over the next couple of years.
Next 10 years or so, Um, just just a quick word on that.
I mean, solar is not necessarily optimal in the UK Those of us who are those of you who visited Britain or no people here and there.
It's not the sunniest country on earth, but the opportunities for solar globally are huge, and the price is still coming down.
And why wouldn't you be exploiting it in countries like Australia were mad not to, um and similarly that the difficulty about nuclear, um, is mirrored within Europe.
Some member states are very happy with it, and others have won't have anything to do with it.
What I would say from Australia's point of view is, you know, maybe maybe attitudes will change.
It's not about being, uh, one can have nuclear and renewables.
It's not a question of, uh of 11 or the other.
In fact, we're probably gonna need every low carbon technology we can get our hands on.
Um, And either way, even if Australia never build a nuclear power station, you're a very fortunate country in your resources and being one of the world's largest supplies of uranium, Uh, for those who do want low carbon nuclear within within their power generation fleet.
So I Either way, there are opportunities there, I think, Yeah.
Yeah, that's a good wrap, Jeremy.
Once again, thank you so much for your time and thank you to everybody who has been able to join us this morning.
Apologies for going a little bit over time, but a real pleasure to talk with you, Jeremy, and share with everybody a little bit of an insight into what's been happening in European energy prices over the last few months what this might mean for Australia and also to take a moment to reflect on what's been happening in Glascow over the last few weeks.